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Business Comment: Terry Murden

TSB raid suggests the new shape of banking has failed

TSB - local bankingThe financial regulators and the UK government have a new banking dilemma, and it is one largely of their own making. Having forced Lloyds to offload TSB to create more competition they now face the prospect of seeing it swallowed up by another big bank.

Unless, that is, they choose to stop it going ahead. And that’s a second dilemma.

Analysts are now saying Spanish bank Sabadell’s £1.7 billion bid for TSB may be stopped before the cheque is written because it will not go down well politically if a “challenger” bank created only last summer loses its independence.

TSB was floated last June, heralding a new dawn in British high street banking. If all goes to plan it will be one of the shortest-lived independent banks. Not only that, it will fall under foreign ownership.

This is a double whammy that the UK government had not anticipated in its strategy for rebuilding the sector. Also last week, Aldermore made its debut on the stock market, while Shawbrook, another challenger, confirmed that under former RBS chairman Sir George Mathewson, it too will go public.

Splitting up the banks was supposed to bring banking back to the people, not see them fall under the wings of giants, and certainly not foreign giants. Making it harder to swallow is that fact that Spain had a financial crisis of its own and yet is able to swoop on British assets.

Sabadell is Spain’s fifth biggest bank. It is a strong competitor in its home market and has developed a successful international presence in the US. It believes that the current banking industry dynamics and macro-economic environment “make the UK an attractive market for future investment”.

But Britain’s Prudential Regulation Authority (PRA) and the UK Treasury are believed to be unhappy at TSB losing its independence. Analysts believe that with a General Election looming the government may begin to agitate for the deal to be blocked or face a backlash from the electorate over another sale of a prized British asset.

The regulator may ease the Treasury’s concerns. Some analysts believe the PRA’s demands on Sabadell to maintain high levels of capital may limit the potential savings it would achieve from the tie-up.

This is still a long shot. As things stand, TSB – which some wanted to see returned to its Scottish roots – may soon be flying the Spanish flag.

TSB was carved out of Lloyds Banking Group on the orders of the European Commission as a condition of receiving £20 billion in state aid in the bail out.

Lloyds parcelled up  631 branches together with the Cheltenham & Gloucester and Intelligent Finance mortgage businesses and relaunched them under the TSB brand.

It floated at 280p, valuing the company at £1.3bn. The Sabadell offer came out of the blue but the TSB board has obviously had time to consider its merits and has already recommended the340p per share offer. Sabadell has until 9 April to decide whether to formalise the bid.

Should it proceed then it will also follow a pattern which I have predicted for some time – that as a result of bank bashing in the UK and the tightening of rules around their operation it is only a matter of time before many of them fall under foreign ownership, or at least find themselves with overseas shareholders owning substantial stakes.

Okay, HSBC is not known as the Hong Kong and Shanghai for nothing, and its chief executive is based in the former British colony. And Spanish bank Santander snapped up the venerable former building societies: Abbey National, Bradford & Bingley, Alliance & Leicester.

But how would the public respond to seeing a bank that was created to oppose big banking and represent “local banking” plunged into a shotgun marriage with an overseas rival who, until last week, no one in Britain had even heard of?

Let’s go one step further and assume that this may be the first in a number of British banks to fall prey to predators as they are restored to health and look attractive to buyers with deep pockets. This is a prognosis I have written about many times.

Unlike TSB, Royal Bank of Scotland’s state-owned status means the government, and not the market, will decide its fate. But a chunky offer from, say, a sovereign wealth fund to take it off the Treasury’s books would be difficult to resist.

In spite of the public’s hostility towards RBS, any future government would face a backlash it was sold to a foreign buyer, adding to a long list of companies, including the utilities, that are now in overseas ownership.

The battle for TSB will test the current government’s resolve.

 

 

 

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